(3) the sterile class (artisans and merchants)The model in our example involves two goods, grains and crafts. Grains are produced with land, labor and capital (meaning here livestock and seed). The production of crafts require local grains and imported foreign goods as raw materials. The following five protagonists are involved:

Of all these categories of advances, (3) and (4) are the most important and the ones which Quesnay analyzed most deeply. Quesnay's distinction between original advances and annual advances were imported by Adam Smith (1776) as "fixed" and "circulating" capital respectively.In our example, we shall ignore all forms of capital but the fourth, the avances annuelles. We have two production processes -- grains and crafts -- and both of them needs to use previously-accumulated stocks of grains as raw materials.To produce 1500 units of grain, the Farmer needs 300 units of grain to sow his field and feed his cattle. But he also needs to keep himself and his laborer alive during the course of the year. So, every year, he will retain 300 units of grain, 150 for himself and 150 for his laborer. Of course, both the Farmer and the Laborer have other needs, e.g. clothes, furniture etc. These crafts must be bought on the market with cash, but the Farmer can only acquire cash by selling his grain on the market. Thus, we shall assume that after the sale of the grain, the Farmer keeps $300 cash to pay for crafts -- $150 for himself and $150 for the Laborer. Thus, the Laborer's full wage in the course of the entire year is 150 grain + $150 cash. The Farmer's expenditure on himself is also 150 grain + $150 cash.So, let us examine the expenditures and receipts of the Farmer. He produces 1500 units of grain, retains 600 units for internal use (avances annuelles = seed, cattle-feed, food for himself and Laborer) and places the remaining 900 units of grain on the market. The 900 grains converts into $900 cash on the market, of which $300 will be taken to buy crafts for himself and his Laborer, thereby leaving 600 left over. This $600 is the net product.Let us now turn to the Artisan. To produce 750 units of crafts, he needs 300 units of grain as raw material and $150-worth of foreign inputs (e.g. imported cloth, etc.) He needs to buy both of these with cash -- the grain on the local grain market, the foreign inputs from the foreign merchant. But the Artisan also needs to live during the year. We shall assume he has the same consumption needs as the Farmer and the Laborer, i.e. 150 crafts + 150 grain. He can produce the crafts for himself (i.e. he retains 150 units of crafts for own-consumption), but the 150 grain needs to be acquired on the market. So, every year, the Artisan needs to buy a total of 450 units of grain on the market and $150-worth of inputs from the foreign merchant. Consequently he needs $600 in cash, which he must acquire by selling 600 units of crafts on the market. As his total output (750 crafts) is equal to his total expenditures (750 = 150 crafts + $600 cash), then the artisan produces no net product.Now, let us turn to the proprietor class. The Landlord's sumptuous lifestyle requires 300 grains + 300 crafts which must be bought on the market. He thus has a need for $600 cash. He acquires this by charging the Farmer $600 rent for the year. Notice that, with his rent, the Landlord has just expropriated the entire net product of the Farmer. The Merchant is the only loose end. We will just suppose that he brings $150-worth of foreign inputs (which he sells to the artisan) and then turns around and uses the cash to buy 150 units of local grain for export.

Production Requirements:Production of grain requires inputs of labor, land and livestockProduction of crafts requires grain and foreign inputs as raw materials. "Livestock" means both animal capital and seed capital.

[MODELO CIRCULAR]

(1) Production SideOnly Farmer and Artisan produce. Some of their produce they retain internally, the rest they supply to market. What is supplied to market is exchanged for cash; what is retained internally does not command cash. At the market, their goods are bought up by different people.In the following account, we trace the movement of grains and crafts. Note that that these numbers are not payments but merely how the actual output flows. Here is the account:Agricultural Sector: (output owned by Farmer)Produces 1500 grain = 600 internal + 900 to market.Of which:Internal = 600 = 300 to Livestock + 150 to Laborer + 150 to Farmer.To Market = 900 = 300 to Landlord + 450 to Artisan + 150 to MerchantManufacturing Sector: (output owned by Artisan)Produces 750 crafts = 150 internal + 600 to market.Of which:Internal = 150 for ArtisanTo Market = 600 = 150 to Farmer + 150 to Laborer + 300 to Landlord

Notes: In the agricultural sector the Farmer has to use part of his output to feed his livestock, a new category. Note also that the Merchant does not buy any of the Artisan's goods, but only the Farmer's grain. The Laborer is to receive 150 of the Farmer's output. This is only part of his wage (paid in kind). Another part will be paid in cash (as we shall see). The 300 units of grain going to the Landlord are not rent payments -- the Landlord just happens to buy the Farmer's grain on the market place.

Production Flows.The production story is captured in the flow diagram 1 below.

(2) Flow of Funds SideLet us now turn to tracing the cash flow. Cash is exchanged for the goods on the market -- i.e. for agricultural goods and manufactured goods. We have not mentioned factors of production and their payment yet. So, we must now put them in place. There are three factors which trade for "cash": the labor of the farmhand (used by farmer and for which a cash wage is paid), the land of the landlord (used by farmer, and for which a cash rent is paid), and finally imported inputs from the foreign merchant (used by the artisan, which must be paid in cash). So, cash trades against both commodities and factors.Farmer:Receives $900 from selling grain in the market (see above)Then:Pays himself 150 units of grain.Pays Laborer $150 in cash, 150 in grain.Pays Landlord $600 in cash (for rent)Pays Artisan $150 in cash (for crafts)Thus: Farmer gets $900 in cash and spends $900 in cash.Landlord:Receives $600 in cash from Farmer as rent paymentThen:Pays Farmer $300 in cash (for grain)Pays Artisan $300 in cash (for crafts)So gets $ 600 in cash and pays spends $ 600 in cash.Artisan:Receives $600 in cash from selling crafts in the market (see above)Then:Pays $300 in cash to Farmer (for grain to be used as raw materials)Pays $150 in cash to Farmer (for grain for own consumption)Pays $150 in cash to Merchant (for imported inputs)So gets $600 in cash and pays spends $600 in cash. Notice that the 300 grains he gets as raw materials is lost to the economy (perhaps he makes baskets out of livre notes!)Farmhand:Receives $150 in cash from Farmer (wage paid-in-cash) + 150 in grain from Farmer (wage paid-in-kind)Then:Pays $150 in cash to Artisan (for crafts)So gets $150 in cash and pays $150 in cash.Foreign Merchant:Receives $150 in cash from Artisan (for imported inputs)Then:Pays $150 in cash to Farmer (for grain)So gets $150 in cash and pays $150 in cash.

Flow of Funds and Factors . The flow of funds story is captured in the flow diagram 2 below.

[MODELO ZIG-ZAG]

The zig-zag is effectively the flow of funds in a dynamic form rather than the "static" natural state. The left side of the Tableau represents the productive class (farmer) and the right side represents the sterile class (artisan). At the top in the center is the landlord. The landlord begins the flow by buying goods from both the artisan hence the income flows from the landlord to both the left (productive) and right (sterile) columns.The income received from the landlord is registered by theclasses in their respective columns. Note that, from theincome, there is an arrow that indicates "expenditures" whichthen extends across the Tableau to the other column. Theseexpenditures are that of the farmer for crafts and the artisanfor grain - thus they cross each other to become the incomeof the artisan and the farmer respectively. The farmer and theartisan then use this new income again to buy goods from each other - thus they cross again. That then becomes subsequent income and thus cross-expenditure. Thus, the zig-zag across the columns is the income-expenditure process of the farmer and the artisan.Notice that the landlord's initial expenditure is in fact equal to his total rent income of 600. So, rent "initiates" the process. As the zig-zag diagram and our previous numerical example shows, from his 600 rent income, the landlord spends 300 on agricultural products (to the left column in the Tableau) and 300 on manufactured products (on the right column). In the second line of the Tableau, from the Farmer's income of 300, he spends 150 on manufactured goods (thus retaining 150 for paying the farmhand for his labor), while from the Artisan's initial inome of 300, he spends 150 on agricultural goods (thus retaining 150 for imported inputs -- notice the Artisan's propensity to import is different from our earlier numerical example). From the subsequent 150 income generated for each class, a new round of expenditures for grains and crafts occurs (75 to each), etc. This income-expenditure process is a convergent series. The bottom of the column depicts the "natural state" once all the flows have been worked out. Note that along the farmer's column on the left side, there is a small arrow indicating the "creation" of produit net by the farmer at every stage in the process. This is summed at the bottom as the total net product of the economy. Notice that it is 600 -- which is identical to the landlord's "initial" expenditure from rent. Thus, the "rent on land" and the "net product" created are the same.